Telecom will pay $1.6 million to two of its rivals for breaching an undertaking not to discriminate against them when competing for customers.
The Commerce Commission found Telecom offered substantial discounts to encourage its broadband retail customers to stay with it, at the expense of its other wholesale customers, Vodafone and Orcon, which also used the service to compete for retail users.
The regulator says the loyalty offers breached Telecom's undertaking not to discriminate against its wholesale customers when the Government forced the phone company to open up its network to rivals.
The Independent Oversight Group, which monitors Telecom to make sure it complied with the rules, found the so-called loyalty offers did breach the undertakings in August last year.
Telecom then withdrew the offers.
However the commission says the offers would have deterred investment and undermined wholesale competition.
The $1.6 million settlement will be shared equally between Vodafone and Orcon, but the Commission says anyone is free to seek further compensation directly from Telecom.